One aspect of the recent government shutdown that has received too little attention is that it significantly increased the risk that thousands of struggling homeowners across the nation would lose their homes. For example: in California, an elderly woman who recently lost her husband is on the verge of losing her family home due to the shutdown. Her lender wrongfully denied her for a deferral program designed to protect certain newly widowed spouses from foreclosure and eviction, but the Housing and Urban Development (HUD) representative who was helping her was furloughed during the shutdown. Even though the shutdown has ended, this widow is still facing foreclosure in February unless HUD takes action to address cases like hers that have piled up while critical agency resources were unavailable.
Sadly, this is not an isolated example. Over 9 million borrowers, most of them low-income, seniors, and/or residents of rural areas, have home mortgages that are either provided or insured by government mortgage programs run by HUD or the Department of Agriculture (USDA). Because key departments at both agencies were operating at drastically reduced capacity or not at all for over a month, thousands of homeowners could not get the help they needed to save their homes. Some may already have undergone foreclosure, and many remain at risk as HUD and the USDA reopen with a substantial backlog of requests for assistance. Unnecessary foreclosures on HUD and USDA borrowers will not just impact vulnerable homeowners; they will also lead to needless losses to the agencies' mortgage insurance funds.
But HUD and the USDA can prevent further serious damage by taking a few simple steps: First, they should extend or waive any foreclosure-related deadline by at least 35 days. Second, they should issue a stay on foreclosures until they clear the backlog of pending requests for assistance. Third, they should direct lenders to rescind any foreclosures that occurred during the shutdown. And, in the event of another shutdown, the agencies should hit the pause button on foreclosures and related deadlines as they should have done during the recent shutdown.
In all cases, the agencies should also track and make public data regarding the effects of the shutdown on borrowers facing foreclosure and the steps the agencies are taking to protect homeowners from unnecessary foreclosures.
As explained on HUD's website, the Federal Housing Administration (FHA) created a National Servicing Center (NSC) “to work with FHA homeowners and their lenders to avoid foreclosure.” For older homeowners with reverse mortgages, HUD and the NSC play a central role in preventing avoidable foreclosures. While key HUD and NSC personnel were unavailable during the shutdown, reverse mortgage borrowers facing foreclosure could not access vital foreclosure alternatives that would otherwise be available, such as repayment plans for missed property charges. Instead, they were left at risk of displacement and possible homelessness.
Just last week, a seriously ill, 83-year-old homeowner in Connecticut was served with foreclosure papers because no one at HUD was available to process her request to renew an “at-risk” extension, which allows homeowners over 80 with serious medical hardships to remain in their homes.
HUD created its "HECM" reverse mortgage program to reduce the effects of economic hardship on older adults and make it easier for them to age in place. Allowing foreclosures on older homeowners to proceed because a request for a repayment plan or an “at-risk” extension went ignored during the shutdown would undercut this mission.
Borrowers with standard FHA-insured mortgages are also at risk. They regularly encounter problems obtaining foreclosure assistance from their servicers and need to contact the NSC and other HUD personnel for help correcting servicer errors that can result in unnecessary foreclosures.
Meanwhile, at the USDA, the Rural Development agency’s Customer Service Center (CSC) plays a critical role in reviewing and approving foreclosure alternatives in the direct loan program, which assists very low-income rural homeowners. In this program, borrowers must get approval for any foreclosure alternatives with CSC representatives. With the CSC effectively non-operational during the shutdown, these borrowers had no way of having viable loss mitigation plans approved. If these borrowers are not protected, lenders may charge ahead with foreclosures that don't need to happen.
In order to avoid unnecessary foreclosures that would not happen but for the shutdown, the secretaries of HUD and the USDA should issue an immediate stay on foreclosures in their single-family mortgage programs and extend the deadlines on programs designed to assist distressed homeowners. Vulnerable homeowners facing the dire consequences of becoming displaced should expect no less.
Lisa Sitkin is a senior staff attorney at the National Housing Law Project focusing on preventing displacement from housing of low-income and other vulnerable groups of homeowners and tenants. Odette Williamson is a staff attorney at the National Consumer Law Center focusing on issues related to elder rights, housing and racial equity.